What Is a Commercial Construction Loan?
A commercial construction loan is short-term financing used to fund the ground-up construction or major renovation of a commercial property. Unlike a conventional mortgage that disburses all funds at closing, construction loans release money in stages — called draws — as work is completed and verified.
In Texas, commercial construction lending is one of the most active segments of the real estate finance market, driven by the state’s population growth and business-friendly environment.
Types of Commercial Construction Loans in Texas
Ground-Up Construction Loans
For building a new structure on raw or improved land. Covers hard costs (labor, materials) and soft costs (permits, architecture, engineering). Funded in draws over the construction period — typically 12 to 24 months.
Renovation and Rehab Loans
For major renovations to an existing structure. Similar draw structure to ground-up construction but shorter timelines. Often used for value-add multifamily or repositioning commercial properties.
Construction-to-Permanent Loans
A single loan that converts from a construction loan to a permanent mortgage once the certificate of occupancy is issued and the property reaches stabilization. Eliminates the need for a second closing and saves on closing costs.
How the Draw Schedule Works
Understanding the draw process is critical before you commit to a construction loan:
- Closing: Loan closes; land (if not already owned) and initial costs funded
- Draw request: Borrower submits draw request with documentation of completed work
- Inspection: Lender’s inspector visits site to verify work completion
- Disbursement: Funds released, typically within 3 to 5 business days of inspection approval
- Repeat: Process repeats 4 to 8 times over the construction period
During construction, most loans are interest-only on the drawn amount — you don’t pay interest on undrawn funds.
Construction Loan Requirements in Texas
- Experience: Lenders want to see prior completed projects for large loans. First-time builders may need an experienced general contractor
- Plans and permits: Approved architectural plans and building permits required before closing
- Fixed-price contract: Executed construction contract with a licensed GC
- Down payment: Typically 20–30% of total project cost
- Appraisal: Lender orders an as-completed appraisal to determine loan size
- Budget and timeline: Detailed construction budget and schedule of values
Construction Loan Rates and Terms
- Loan amounts: $250,000 to $20,000,000+
- LTC (Loan to Cost): Up to 70–80% of total project cost
- LTV (Loan to ARV): Up to 65–70% of as-completed value
- Rates: 9% to 13% interest-only during construction
- Term: 12 to 24 months construction period
- Points: 1 to 3 origination points
Hard Money Construction Loans vs. Bank Construction Loans
Banks offer lower rates but come with significant drawbacks for many Texas developers:
- Bank construction loans take 60 to 120 days to close and require extensive documentation
- Banks often require 20–30% presales or preleasing before they’ll fund
- Bank underwriting is rigid — if your project doesn’t fit their box, you don’t get the loan
Private hard money construction loans close in 2 to 3 weeks, have flexible underwriting, and don’t require presales. The trade-off is a higher rate — but speed and certainty of closing often matter more than rate on a time-sensitive development deal.
Get a Construction Loan Quote in Texas
Tell us about your project — property type, location, total project cost, and timeline — and we’ll structure a construction loan that fits. Direct lender since 1998, lending across all major Texas markets.
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